MUKESH C. SHAH, MUMBAI V. ITO 2(3)-2, MUMBAI

ITA 2318/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55530 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 29-09-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 24-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DR K SHIVRAM
• Keywords: Difference of opinion

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'I' BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 2318/MUM/2010 (ASSESSMENT YEAR: 2006-07) SHRI MUKESH C. SHAH INCOME TAX OFFICER - 2(3)-2 504, STANFORD PLAZA MUMBAI OPP. FAME ADLABS, OFF LINK ROAD VS. ANDHERI (W), MUMBAI 400054 PAN - AAVPS 2662 K APPELLANT RESPONDENT APPELLANT BY: DR. K. SHIVRAM RESPONDENT BY: SHRI SUNIL KUMAR SINGH DATE OF HEARING: 29.09.2011 DATE OF PRONOUNCEMENT: 14.10.2011 O R D E R PER B. RAMAKOTAIAH, A.M. THIS IS AN ASSESSEES APPEAL AGAINST THE ORDER OF CIT(A)-6, MUMBAI, DATED 25.01.2010 CONFIRMING THE PENALTY OF ` 15,97,597/- LEVIED BY THE ITO UNDER SECTION 271(1)(C) OF THE ACT. 2. BRIEFLY STATED THE ASSESSEE, AN INDIVIDUAL, IS I N THE BUSINESS OF DEVELOPING REAL ESTATE AND HAS TWO PROPRIETARY CONC ERNS IN THE NAME OF M/S. PRATHMESH ENTERPRISES AND ALSO MUKESH C. SHAH. THE ASSESSEE PURCHASED A PLOT OF LAND BEARING SURVEY NO. 4848 ADMEASURING 24 32.75 SQ. METRES AT OSHIVARA, VEERA DESAI ROAD, ANDHERI(W), MUMBAI 4000 58. A JOINT DEVELOPMENT OF PROPERTY WAS MADE WITH M/S. LAXMI ST ONE SUPPLY CO. ASSESSEE MUKESH C. SHAH AND M/S. PRATHMESH ENTERPRI SES WILL SHARE 42% OF BENEFIT OF JOINT DEVELOPMENT, WHEREAS M/S. LAXMI STONE SUPPLY CO. WAS ASSIGNED 58%. ACCORDINGLY, THE CONSTRUCTION WAS STA RTED AND, ACCORDING TO THE A.O., FINISHED SOMEWHERE IN 2005. THE A.O. NOTI CED THAT THE ASSESSEE HAS SOLD ALL THE FLATS OF HIS PART AND RECEIVED AN AMOUNT OF ` 2.57 CRORES. AS ITA NO. 2318/MUM/2010 SHRI MUKESH C. SHAH . 2 THE ASSESSEE HAS NOT DECLARED ANY PROFIT ON SALE OF THE FLATS, THE A.O. ASKED HIM WHY PROFIT SHOULD NOT BE DETERMINED. IT WAS THE CONTENTION OF THE ASSESSEE THAT THE PROJECT WAS INCOMPLETE AND OCCUPA TION CERTIFICATE WAS NOT GIVEN AND THE ASSESSEE HAS SPENT FUNDS IN THE NEXT YEAR ALSO. AS THE ASSESSEE WAS FOLLOWING PROJECT COMPLETION METHOD, THE ASSESS EE HAS NOT OFFERED ANY INCOME IN THE IMPUGNED YEAR. ALONG WITH A.Y. 2006-0 7, THE A.O. ALSO UNDERTOOK SCRUTINY IN A.Y. 2005-06. HE WAS OF THE O PINION THAT THE PROJECT IS COMPLETE AND THE EXACT PROFIT CAN BE CRYSTALLIZED. ACCORDINGLY, HE COMPUTED THE INCOME IN THE YEAR UNDER CONSIDERATION AS UNDER : - M/S. MUKESH C SHAH CONSTRUCTION ACCOUNT: SALE OF FLATS 2,05,70,814/- THE WIP (INCLUDING THE WIP OF NEXT YEAR) (-) 1,65 ,34,713/- PROFIT 40,36,101/- LESS: ALREADY TAXED IN A.Y. 2005-06 6,58,111/- PROFIT FOR TAXATION 33,77,990/- M/S. PRATHAMESH ENTERPRISES: SALE OF FLATS 1,11,61,814/- THE WIP (INCLUDING THE WIP OF NEXT YEAR) (-) 94,93,733/- PROFIT 16,68,081/- LESS:ALREADY TAXED IN A.Y. 2005-06 3,00,978/- PROFIT FOR TAXATION 13,67,103/- ACCORDINGLY, AN AMOUNT OF ` 47,45,093/- WAS ADDED AS INCOME OF PROFIT FROM SALE OF FLATS TO THE RETURNED INCOME OF ` 38,400/-. THE A.O. INITIATED PENALTY PROCEEDINGS UNDER SECTION 271(1)(C). IN THE PENALTY PROCEEDINGS, IT WAS THE SUBMISSION OF THE ASSESSEE THAT THERE WAS NEITHER C ONCEALMENT NOR FURNISHING OF INACCURATE PARTICULARS AS THE ISSUE I S ONLY ABOUT YEAR OF TAXABILITY OF INCOME AND THE CHANGE OF METHOD OF AC COUNTING FROM PROJECT COMPLETION TO PERCENTAGE COMPLETION. THE A.O., HOWE VER, DID NOT AGREE WITH THE CONTENTION AND LEVIED PENALTY HOLDING THAT THE ASSESSEE HAS NOT OFFERED INCOME AND HAS NOT APPEALED AGAINST THE ORDER AGAIN ST ADDITIONS MADE BY THE A.O. HE LEVIED THE PENALTY AT 100% OF TAX SOUGH T TO BE EVADED. 3. BEFORE THE CIT(A), THE ASSESSEE REITERATED THE S AME SUBMISSIONS TO CONTEND THAT IT WAS A CASE OF DIFFERENCE OF OPINION REGARDING COMPUTATION OF INCOME FROM THE PROJECT. IT WAS FURTHER CONTENDED T HAT IT WAS NOT POSSIBLE TO ITA NO. 2318/MUM/2010 SHRI MUKESH C. SHAH . 3 OFFER ANY INCOME IN A.Y. 2006-07 AS EXPENSES HAVE B EEN ACTUALLY INCURRED AFTER 31.03.2006 WHICH WERE ALSO CONSIDERED BY THE A.O. WHILE COMPUTING THE INCOME IN THIS YEAR ITSELF. IT WAS SUBMITTED TH AT THE ASSESSEE WAS NOT IN A POSITION TO COMPUTE THE PROFITS OF THE PROJECT AS A LL THE EXPENSES COULD NOT BE CRYSTALLIZED AND THE PROJECT WAS ALSO NOT GIVEN ANY OCCUPATION CERTIFICATE BY THE AUTHORITY. THE CIT(A), HOWEVER, DID NOT AGREE W ITH THE CONTENTION, AND SINCE THE ASSESSEE HAS NOT CONTESTED THE ADDITIONS SO MADE, HE WAS OF THE OPINION THAT SALE CONSIDERATION HAVING BEEN ADMITTE DLY RECEIVED AND PHYSICAL POSSESSION OF MOST OF THE FLATS HAD BEEN GIVEN TO T HE FLAT BUYERS, THERE IS NO MERIT IN THE SUBMISSION, AND FOR NON-DISCLOSURE OF INCOME IN THE YEAR OF ACCRUAL, HE CONFIRMED THE PENALTY HOLDING THAT THER E IS ENOUGH JUSTIFICATION FOR LEVY OF PENALTY. THE ASSESSEE IS AGGRIEVED. 4. REFERRING TO THE FACTS ON RECORD, THE LEARNED CO UNSEL FOR THE ASSESSEE SUBMITTED THAT THE A.O. HAS SHIFTED THE INCOME FROM A.Y. 2007-08 TO A.Y. 2006-07 AND POINTED OUT THAT CREDIT WAS GIVEN FOR T HE WORK IN PROGRESS SHOWN AS ON 31.03.2007 WHILE ARRIVING AT THE PROFIT FOR THE YEAR ENDING 31.03.2006. HE REFERRED TO THE COMPUTATION MADE BY THE A.O. AND SUBMITTED THAT THE A.O. HAS TAXED SIMILARLY IN A.Y. 2005-06 A LSO TO THE EXTENT OF ` 9.58 LAKHS WHICH WAS GIVEN CREDIT IN THIS A.Y. IT WAS FU RTHER SUBMITTED THAT THE A.O. HAS NEITHER INITIATED PROCEEDINGS NOR LEVIED A NY PENALTY IN A.Y. 2005-06, THE INCOME OF WHICH WAS BROUGHT TO TAX ON SIMILAR L INES IN THAT YEAR ALSO. IT WAS HIS SUBMISSION THAT THERE IS NEITHER ANY CONCEA LMENT OF INCOME NOR ANY FURNISHING OF INACCURATE PARTICULARS AND IT IS A QU ESTION OF SHIFTING THE YEAR OF TAXABILITY FROM A LATER YEAR TO THE YEAR UNDER CONS IDERATION ON THE SAME SET OF FACTS. THE ASSESSEE HAS NOT APPEALED AGAINST SUCH A CTION OF THE A.O. CONSIDERING THE COST INVOLVED IN CONDUCTING THE LIT IGATION. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE ALSO SUFFERED LOT OF IN TEREST AS THE INCOME WAS TAXED IN THIS YEAR BUT THERE IS BONA FIDE EXPLANATI ON IN NOT OFFERING THE INCOME IN THE RESPECTIVE YEARS AS THE PROJECT WAS N OT COMPLETE AND OCCUPATION CERTIFICATE WAS NOT GIVEN. FOR THE CONTE NTION THAT SALE CONSIDERATION WAS RECEIVED AND POSSESSION WAS GIVEN , IT WAS SUBMITTED THAT ALL THE FLATS WERE SOLD IN ADVANCE AT THE TIME OF S TARTING THE PROJECT ITSELF AND ITA NO. 2318/MUM/2010 SHRI MUKESH C. SHAH . 4 UNLESS MONEYS ARE RECEIVED IN DUE COURSE, THE PROJE CT WOULD NOT HAVE BEEN COMPLETED AS IS THE PRACTICE IN DEVELOPMENT OF FLAT S. THAT DOES NOT MEAN THAT THE ASSESSEE HAS ACTUALLY SOLD THE APARTMENTS AND G IVEN POSSESSION. THE FINDING OF THE A.O. THAT SOME FLATS WERE GIVEN POSS ESSION IS NOT CORRECT AS POSSESSION WAS HANDED OVER SUBSEQUENTLY. THE ASSESS EE HAS NOT CONTESTED THE ISSUE BUT THAT DOES NOT MEAN THAT THERE IS CONC EALMENT OF INCOME. HE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS P. LTD 322 ITR 158 (SC) TO SUBMIT THA T THERE IS NO CONCEALMENT ON THE PART OF THE ASSESSEE. 6. THE LEARNED D.R. SUBMITTED THAT THE ASSESSEE HAS COMPLETED 80% OF THE PROJECT AND SALE PROCEEDS WERE REALIZED AND EFF ECTIVE HANDING OVER WAS ALSO DONE. THEREFORE, THERE IS POSTPONEMENT OF INCO ME AND NOT OFFERED THE CORRECT INCOME IN THE YEAR UNDER CONSIDERATION. HE ALSO RELIED ON THE HONBLE DELHI HIGH COURT DECISION IN THE CASE OF ZOOM COMMU NICATION (P) LTD. 327 ITR 510 (DEL) TO SUBMIT THAT MALA FIDE CLAIM CAN AL SO ATTRACT PENALTY SINCE THE ASSESSEE HAS NOT OFFERED ANY INCOME CORRECTLY T O BE BROUGHT TO TAX BY THE A.O. WHICH WAS NOT CONTESTED. THERE IS SCOPE FOR LE VY OF PENALTY ON THE FACTS OF THE CASE. HE RELIED ON THE ORDERS OF THE A.O. AN D CIT(A). 7. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE C OMPUTATION OF INCOME, THE A.O. HAS CONSIDERED THE TOTAL VALUE OF SALE OF FLATS AS PER THE ACCOUNTS OF LATER YEAR AND NOT OF THE YEAR. THE ASS ESSEES TOTAL ADVANCES AGAINST THE FLATS WERE AT ` 2.82 CRORES IN THE BALANCE-SHEET AS AT 31.3.2006, WHEREAS THE AMOUNT CONSIDERED BY THE A.O. TOWARDS S ALE OF FLATS WAS ` 3.16 CRORES AS CAN BE SEEN FROM THE COMPUTATION EXTRACTE D ABOVE. NOT ONLY THAT, THE WORK IN PROGRESS WAS ALSO TAKEN FROM THE BOOKS OF ACCOUNT FOR THE PERIOD ENDING 31.3.2007. AFTER COMPUTING THE PROFIT IN THE IMPUGNED YEAR, THE A.O. ALSO GAVE CREDIT FOR THE AMOUNT TAXED IN A.Y. 2005- 06 ON SIMILAR LINES. THE ASSESSEE HAS NOT CONTESTED THE METHODOLOGY ADOPTED BY THE A.O. IN BOTH THE YEARS BUT THAT DOES NOT MEAN THAT THE ASSESSEE HAS DELIBERATELY CONCEALED THE INCOME. IT IS A MERE SHIFTING OF TAXABILITY OF THE YEAR FROM A.Y. 2007-08 TO A.Y. 2005-06 AND A.Y. 2006-07 BY REJECTING THE ASSE SSEES METHOD OF ACCOUNTING FROM PROJECT COMPLETION METHOD TO PERCEN TAGE COMPLETION ITA NO. 2318/MUM/2010 SHRI MUKESH C. SHAH . 5 METHOD. THERE IS BONA FIDE REASON AS EXPLAINED BY THE ASSESSEE IN NOT OFFERING THE INCOME IN THESE TWO YEARS. THE ASSESSE E ALSO ACCEPTED THE COMPUTATION AND NOT CHALLENGED THE ORDER IN APPEAL AS BY THAT TIME THE ASSESSMENT WAS COMPLETED, THE PROJECT WAS COMPLETED AND OCCUPATION CERTIFICATE WAS ISSUED. IN ORDER TO AVOID LITIGATIO N, THE ASSESSEE ACCEPTED THE ORDER. THEREFORE, WE ARE OF OPINION THAT THERE IS N O CASE FOR LEVY OF PENALTY UNDER SECTION 271(1)(C). IT IS ALSO ON RECORD THAT THE A.O. ON SIMILAR LINES ASSESSED PART OF INCOME TO THE EXTENT OF ` 9.59 LAKHS IN A.Y. 2005-06 FOR WHICH NEITHER PROCEEDINGS UNDER SECTION 271(1)(C) W ERE INITIATED NOR PENALTY WAS LEVIED. WE ARE UNABLE TO UNDERSTAND HOW A PENAL TY CAN BE LEVIED IN THIS YEAR UNDER SECTION 271(1)(C) WHEN THE ORDERS OF THE A.O. ARE COMMON FOR BOTH THE YEARS. SINCE THE ISSUE IS ONLY WITH REFERENCE T O THE YEAR OF TAXABILITY AND THE A.O. ADOPTED THE SALE PRICE AS WELL AS THE COST OF PROJECT FROM THE NEXT ASSESSMENT YEAR. IT IS NOT POSSIBLE FOR THE ASSESSE E TO FINALIZE THE INCOME IN THE IMPUGNED ASSESSMENT YEAR AS THE PROJECT WAS NOT COMPLETE. THE A.O. HAVING SHIFTED THE METHODOLOGY OF ACCOUNTS CANNOT A GAIN LEVY PENALTY ON THE ASSESSEE FOR HIS ACTION IN CHANGING THE METHODOLOGY OF ACCOUNTS. IT IS AN HONEST DIFFERENCE OF OPINION FOR WHICH, IN OUR VIEW , PENALTY UNDER SECTION 271(1)(C) IS NOT WARRANTED. THEREFORE, WE CANCEL TH E PENALTY UNDER SECTION 271(1)(C), AS THE FACTS DO NOT INDICATE CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS. JUST BECAUSE THERE WAS AN A DDITION TO THE TOTAL INCOME, IT DOES NOT AUTOMATICALLY LEAD TO THE FINDI NG THAT INCOME WAS CONCEALED. IN VIEW OF THESE, THE PENALTY IS HEREBY CANCELLED. 8. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH OCTOBER 2011. SD/- SD/- (D.K. AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 14 TH OCTOBER 2011 ITA NO. 2318/MUM/2010 SHRI MUKESH C. SHAH . 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) VI, MUMBAI 4. THE CIT II, MUMBAI CITY 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI NG: